art market, artists may benefit from the rise in value of their work by incorporating commission requirements in the smart contracts that accompany NFTs (for example, the SuperRare NFT marketplace requires that creators receive a 10% commission when artwork continues to trade on the secondary market). Access to a readily accessible online resale market could also mean that works gain value quickly. NFTs can allow artists to better monetize their work by selling NFTs directly online without middlemen. The growth of NFTs in art has been fueled by its unique attributes. The extent to which a secondary market exists depends on the item, and the item’s popularity. Marketplaces, including Rarible, OpenSea, SuperRare, and Nifty Gateway, have sprung up for selling and reselling, NFTs. Importantly, NFTs can include smart contracts that can specify the rights of the buyer and seller and-unlike most traditional art sales in the United States-can require that the creator or first seller of the NFT receive a certain percentage of the NFT’s resale, each time the work is resold. Mark Cuban, for example, reportedly told USA Today recently that NFTs “could turn into a top 3 revenue source for the NBA over the next 10 years.” Other industries, from the NBA to sneaker makers, have also taken notice. Some in the cryptocurrency and art fields have pointed to NFTs as a game changer for commerce and art. The market for the digital kittens rose steeply for certain rare items and then quickly fizzled, but NFTs have remained, and their use has dramatically increased recently. NFTs first gained notice as part of the brief CrypoKitties craze in 2017, which allowed buyers to buy and trade digital versions of kittens. Typically, NFTs are minted on Ethereum blockchain, although NFTs can also be minted on other blockchain systems (for example, Top Shot NFTs are minted on the Flow blockchain). Because the file exists on a blockchain, it can be viewed publicly, meaning the item’s provenance is public and verifiable. When someone “mints” an NFT, they create a file that lives on a blockchain that cannot be edited or deleted. An NFT can thus be tied to a physical object but it is not the object itself. Nike has patented a system in which a customer acquires a virtual version of a shoe.
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Rather, NFTs are unique, although there may be multiple “editions” of a particular artwork or collectible available for sale, each evidenced by its own NFT.Īn important distinction between traditional works of art and works attested to and sold using NFTs is that the “work” must be either a work created in a digital medium (such as the digital collage that the artist Beeple recently sold for $69 million) or a digital image of a physical work (such as a painting or sculpture).
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NFTs are “non-fungible” because unlike other cryptocurrency, such as Bitcoin or Ether tokens, NFTs are not interchangeable with one another. For purposes of this discussion, each of these is deemed to be a work of art. NFTs can also be used for items that exist only inside video games (for example, rare character skins, or clothing that can be worn inside Fortnite or Pokemon Go). NFTs of NBA player highlight videos are sold through the “Top Shots” online marketplace. Theoretically, any digital content can be minted into an NFT: photographs and other works of digital art, songs, tweets, even memes. This article discusses potential legal issues in the space.Īn NFT is a digital file on a blockchain that shows who owns a unique piece of digital content. Our firm represents clients in some of the world’s most significant disputes relating to blockchain, cryptocurrency, film, music, and artworks, and has been closely monitoring the exponential growth in the non-fungible token (NFT) art and collectibles market.